A recent trend is to use international debit or credit cards issued by offshore banks. This enables easy usage.

STEP 1: A group of individuals float a multi-level marketing scheme or investment scheme promising extraordinary returns to investors.

STEP 2: Investors deposit cash or cheques in bank accounts floated by the firm. The firm, in turn, issues them post-dated cheques.

STEP 3: The firm transfers the money to personal bank accounts of the promoters.

STEP 4: The promoters wire transfer the money to an offshore bank account in a tax haven. They wire transfer it again to another offshore bank account, in another tax haven, to widen the trail.

STEP 5: The offshore bank issues a credit or debit card valid anywhere in the world, which a promoter can use for transactions.

LIVE EXAMPLE:

In 2009, India's Financial Intelligence Unit (FIU) received suspicious transactions report from banks that a large number of deposits had been made in a few accounts. Further investigation revealed these accounts had a common permanent account number (PAN), address and contact numbers, and that it was a multi-level marketing scheme promising extraordinary returns. As explained above, the firm transferred the money collected to personal bank accounts of its directors.

Fifteen operators floated 10 firms, which in turn opened 35 bank accounts in 11 different banks. One operator alone received Rs 130 crore in his accounts over a period of 16 months, and the state police have attached Rs 190 crore of assets in various locations.

Increasingly, criminals want to own legitimate business. It could be to earn a return or to convert black money into white. A typical example of how this is done:

STEP 1: Criminal X generates Rs 10 crore in cash from illegal activities in India, and wants to 'launder' it abroad. He uses the 'hawala' route to transfer the money: he gives the Rs 10 crore cash to a local hawala operator. The operator, for a fee, arranges to deposit the sum in an offshore bank account belonging to a company floated by X.

STEP 2: The offshore company buys shares in a domestic company promoted by X, that too at steep valuations

STEP 3: The domestic company pays a high salary and dividends to X. Black becomes white, and X can show the money as income.

INDICATORS:

International corporate structure with no visible benefits

Shares of domestic companies sold at higher valuations

Tax returns don't support capital contribution by investors

Large cash holdings

Offshore companies will do business outside the country where it is formed. Such companies can be run by a nominee director and are often not required to publish annual accounts.

Mixing illicit money sources with legit ones is a popular method because it's hard to detect, especially if there is a large cash component in the legal business.

STEP 1: Illegal money is mixed with actual sales, by depositing in the company's bank account. The cash deposit will be justified as legitimate business income, say, cash receipts in restaurant.

STEP 2: The company projects the fabricated sales as total income and files an income-tax return. However, it avoids paying tax on the total income by showing losses in other business lines or by showing fictitious deductions.

STEP 3: Black has become white, and promoters can use it to buy assets.

This type of transaction is usually done to evade notice by authorities monitoring transactions above a certain threshold.

STEP 1: X deposits illegal proceeds into many bank accounts. The amount transferred is below the threshold level for reporting suspicious transactions. If Rs 10 lakh is the threshold level, deposits will be for Rs 9 lakh. This is called 'smurfing'.

STEP 2: The money is transferred from these multiple accounts to an offshore bank account to take the trail away from the source.

STEP 3: A loan agreement is signed between the holder of the offshore bank account and X.

STEP 4: Once he receives the money, X can spend the money to purchase assets.